Shortfall considered biggest crisis in Palestinian Authority history;
payment could be delayed for few weeks.
RAMALLAH – Palestinian Authority Finance Minister Nabil Kassis
announced Tuesday that the PA is incapable of paying June salaries to
its 160,000 employees on time, adding that payment will be delayed
for several days to a few weeks.

In a press conference held in the governmental media center in
Ramallah, Kassis explained the difficulties of the current financial
crisis, saying that the PA is in a position that prevents it from
fulfilling its financial commitments.

The financial crisis started a few years ago as the donors cut their
aid to the PA, but it is considered the biggest crisis in its
history, with the potential of a total collapse of the PA.

“We are working according to a specific plan to cover the deficit by
relying on the availability of Arab and international aid, and
depending on revenues,” Kassis said.

The salaries topic pops into the surface every once in a while.
Critics of the PA expect that the recent emphasis on the crisis aims
to pressure the Palestinian streets and prevent a potential protest
movement against the PA. Others thought PA Prime Minister Salam
Fayyad’s hint of leaving his post led him not to postpone the crisis
any further.

Last week, Fayyad remarked for the first time that he might run for
PA president.

The annual budget of the PA approaches $3.5 billion, with around half
of it being spent in the Gaza Strip on salaries as well as other
services such as electricity, water bills and infrastructure
projects. The PA has started cutting down on these bills recently.

Kassis, who replaced Fayyad as finance minister, inherited a 2011
deficit of $1.4b., $700 million of which is urgently needed to pay
public employees’ salaries, bank loans, private sector dues and Gaza
utility bills.

Analysts believe the Palestinian split between the West Bank and Gaza
doubles the yearly deficit.

The PA is spending money in Gaza while the taxes are being collected
by Hamas’s de-facto government.

The PA used to cover the usual $1.2b. deficit in the budget from
donor money.

However, international aid has declined in recent years, with donors –
particularly Arab states – not committing to their pledges, forcing
the PA to take out loans from national and international banks.

In turn, the PLO Executive Committee called upon the Arab countries
to pay their pledges.

With the shortage of the funds, the PA’s general debt reached $2.2b. –
half of which was borrowed from banks working in the Palestinian
territories.

Kassis announced that the PA borrowed from banks last year to fulfill
its obligations.

“We borrowed $40m. from a bank, and another NIS 40m. from another
bank,” he said.

The PA finance minister said they reached the limit of the money they
can borrow.

“The borrowing is linked with guarantees,” he said. “Banks operating
in the Palestinian territories reached their lendinglimit, and
externally we can’t provide guarantees because of the occupation, and
the economic downturn.”

The PA needs $100m. a month and was hoping to borrow it from external
sources.

However, the International Monetary Fund rejected an Israeli request
to borrow $100m. on behalf of the PA.

According to Haaretz, the IMF said it did not want to set a precedent
of borrowing money on behalf of a non-state entity.

The lack of the PA’s sovereignty on it borders leads to tax evasion
because Palestinian merchants purchase goods directly from Israeli
merchants. All Palestinian imports go through Israeli borders and are
subject to Israeli-imposed taxes that are returned to the PA.

International institutions believe half of the products in
Palestinian markets are imported directly from Israeli merchants, and
thus costing the Palestinian budget $400m. annually.

In the opinion of Shakir Khalil, an economic analyst, “the
Palestinian government’s policy is increasing the crisis, every month
it is postponing the crisis. Why are we still dependent on donor
money to pay the salaries’ bill?” Khalil, a PhD candidate at Lille 1
University in France, said that when Fayyad first led the Finance
Ministry five years ago, he wanted to reduce the inflation in the
public sector. “But we noticed that the bill is increasing, why?”
Khalil said.

Kassis announced that the PA was expecting $1b. in 2012 in funds, but
only received $470m.

He added: “We expect to have another $ 500 million for the end of the
year, we have a program to reduce costs and we will try to avoid any
increases on the budget.”

With 59 percent of the budget being paid to salaries, it’s highly
unlikely the austerity plan will work.

The absence of a real political horizon negatively affects the amount
of external aid, as well as external investments.